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Costs and supply— and global headwinds— shape the outlook With elevated construction costs, new luxury supply remains limited, providing a continuing tailwind for pricing. Luxury represents the smallest share of rooms currently in construction in the U. S. The broader development pipeline has cooled, and now developers of high-end hotels are often adding condominium units as part of the hotel tower to make the financing work.
Two topics continue to demand luxury hotel owners’ attention: the continued softness in international inbound travelers and cost creep in all line items. International guests are an important customer group for
many luxury hotels, but despite the current weakness of the U. S. dollar, international tourist flows have decelerated this year.
Looking ahead, U. S. luxury-class ADR is forecast to grow 2.5 percent in 2026— barely enough to beat the expected inflation rate— which in turn puts pressure on margins. Highend hotels have a high labor cost component, and this cost will likely only increase in the coming quarters.
Even so, luxury hotels are expected to continue to drive an ADR premium, but it will take operational tenacity for these higher rates to drive the bottom line. For properties that provide experiences to guests while driving returns for their owners, a healthy transaction market awaits. n
“ Some operators are worried about price fatigue, but the willingness of consumers to splurge on‘ experiential’ stays and amenities has so far remained intact, especially when the property feels unique or restorative.”
JAN D. FREITAG is the national director, hospitality analytics, for the CoStar Group. A sought-after public speaker, Freitag comments on the trends that shape the U. S. hotel industry and is frequently quoted in trade publications and the general news media. He is a trusted source of timely insights for investors, owners and operators. He holds a bachelor’ s degree, with distinction, from the School of Hotel Administration, Cornell University, and received his Executive MBA, with honors, from Vanderbilt University.
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